If U.S. Protectionism Takes Hold, the World May Miss Bush

By Mary Lu Carnevale

Peter A. Brown, assistant director of the Quinnipiac University Polling Institute, is a former White House correspondent with two decades of experience covering Washington government and politics. Click here for Mr. Brown’s full bio.

Many in the international community made no secret of their unhappiness with the U.S.’s inclination to go its own way on foreign policy over much of the past eight years. They welcomed the election of Barack Obama and an even more Democratic Congress in hopes of ending U.S. unilateralism.

Yet in the first month of the Obama era, there are early signs that while the new power elite in Washington, D.C., may be more collaborative when it comes to military matters, the U.S. may be willing to ignore the rest of the world in another, perhaps even more critical area: Trade.

Signs of increased American trade protectionism in both word and deed are making many of those same folks from Bonn to Beijing who cheered the U.S. election results even more nervous than they were in the Bush/Republican era.

The U.S. military intervention in Iraq and Afghanistan may have struck many Europeans, Asians, Russians and those in the Muslim world as superpower arrogance. It made them uncomfortable, but for the most part, the U.S. actions didn’t directly threaten their way of life.

But American trade protectionism, should it come to pass, could hurt them in their wallets. If classical economic theory holds, a resulting trade war could lengthen and deepen what has already become a global recession.

Most economists agree that the American decision to erect trade barriers as the economy was plunging made the Great Depression far worse and far longer than it would have been otherwise.

Barring Foreign Steel for Stimulus Projects

The $819 billion economic stimulus package that passed the House of Representatives last week contains a provision that would mostly bar non-American steel and iron from being used in the legislation’s infrastructure projects.

Its proponents argue free trade has cost millions of American jobs to countries that can produce goods at a lower cost. Opponents, with some data to back them up, say that trade has created more new jobs through exports than jobs lost through competition from imports. But that data also show while some parts of the country have benefited from free trade, others have, in fact, declined.

In any case, the issue remains emotional. It is, after all, easier to pinpoint jobs lost through foreign competition than ones created from exports.

The pending legislation with the “Buy American” provision must still be approved in the Senate, where there is support for going further down the road of protectionist measures by requiring that all stimulus-funded projects to use only U.S.-made goods. Mr. Obama, who during his campaign sometimes sounded protectionist and other times did not, at this point is saying he wants to avoid a trade war.

Also troubling to America’s trade partners were Treasury Secretary Tim Geithner’s recent remarks on China “manipulating” its currency to gain a trade advantage over the U.S. Mr. Geithner said Mr. Obama would use “aggressively all diplomatic avenues” to change China’s currency policies.

Many of the same folks who favor protectionist legislation argue that by keeping their currency artificially weak, the Chinese get an unfair edge in selling products here, and make U.S. goods more expensive there. They want government to counter that imbalance.

Of course, trade policy is a giant, very dangerous game of chicken in which each side generally seeks an edge while claiming to play fair while they other side is not.

Changing Attitudes in Washington

Since the inauguration, the change in attitude in Washington is palpable. The Bush administration favored free-traders. It didn’t play many trade games and sought free-trade agreements to remove all tariffs with as many other countries and regions as possible. Over the last two presidencies – both Democrat Bill Clinton and Republican George W. Bush – Democratic support for free trade in Congress has declined notably and the impetus for increased restrictions these days comes more from Capitol Hill than the White House.

All this has not gone unnoticed around the world. The European Union’s trade commissioner made it clear that if Congress passed, and Mr. Obama signed, legislation prohibiting the sale of European goods in the U.S. for stimulus projects the E.U. would retaliate. Germany’s Chancellor Angela Merkel last week even took exception with Washington’s bailout of the domestic auto industry as “protectionism.” In that it constituted a subsidy that would give U.S. car makers an unfair edge over their foreign competition.

Canadian officials have been going even further, reportedly lobbying Congress by pointing out that the proposed stimulus legislation would violate a number of existing U.S. trade pacts.

And the Chinese, seeing the currency manipulation allegations as an indication of potential future barriers to their products in U.S. markets, were quick to deny the charge and to warn about the potential unintended consequences of trade barriers.

What happens to the “Buy American” provisions of the stimulus bill is likely to be only the first of a series of battles in the Obama years over the virtues and risks of trade protectionism.

The irony is that all those folks outside the U.S. who saw him as their man who would end American arrogance toward the rest of the world may end up wishing for the trade policies of the guy they didn’t like.

Comments (3 of 3)

Your polititions must be on drugs.every one of those in the congress and the senate that want this america first nightmare should be required to take mandatory drug testing.wake up and smell the coffee you cone heads.who do you think is going to buy your bonds so you do this stimulus package.if you print money within,you are looking at setting off a depression worldwide the likes thats never been seen.sureley there must be some people in washington that have a better handle on economics.do not push your mild mannered canadians to the north of whom you always take as a given.quit being ignorant and try to equate what you are trying to pull off,madness.lets try to work it out,that is what makes good family relationships.sincerely:uncl paul

12:43 pm February 4, 2009

Emma wrote :

I believe it is time for US to protect her own workers. For how long will we let trade loopholes be taken advantage of at the expense of americans. It is no lie that China manipulates its currency and sells substandard goods to the rest of the world. It is time to call a spade a spade

1:01 am February 4, 2009

Larry C wrote :

We should maintain balanced trade at the very least. it's interesting how countries that protect the food on their own table now squeal like pigs when it looks like they will lose their unfair advantages. They will gobble every last crumb off the tables of the USA citizen if allowed, demonizing us the entire time for not being a willing victim. It's time that our corrupt congress starts protecting the efforts of the US citizens on the street, not foreign business interests and illegal aliens. We can no longer keep draining our blood to maintain other country's economies, it's suicide. They are selfish and arrogant to expect us to. If they want to sell goods here, they should buy our goods too. We enact silly tariffs and the WH has been signing 5000+ tariff waivers a year. We need balanced trade that can benefit both. Fair is fair.

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Capital Journal is WSJ.com’s unique site for analysis of the political and policy maneuvering in Washington in the era of Barack Obama. It features the Capital Journal columns and occasional other postings by executive Washington editor Gerald F. Seib, and will house Political Wisdom, the Journal’s daily aggregation of the smartest political analysis from around the Internet. Also look for regular columns by Peter Brown of the Quinnipiac University Polling Institute and occasional contributions from others.